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Outsource to a professional employer organization

By Milan P. Yager

As a physician with a busy and challenging practice, your most important focus is your patients. But what about the work-related concerns of your staff and the employment laws that apply to your practice? It’s a challenge to keep up with new regulations, administer the payroll, make certain your own staff has proper health coverage, and know how to ensure your staff is receiving competitive benefits – even when you have a competent office manager.

An estimated 100,000 businesses outsource employment-related chores to professional employer organizations (PEOs). These businesses also provide access to employee benefits and professional expertise in HR management that are not always possible for small companies. The PEO may either assume or assist with workers’ compensation coverage and manages the claims for your practice. Most PEO clients have an average of 19 workers, although larger ones such as medical centers can also use PEOs.

Physicians who have contracted with PEOs say they realized they needed human resources professionals to help them with employment tasks that require specialized knowledge. They also recognized they could reduce time spent meeting with different vendors and handling HR tasks — time that should be focused on providing medical care and patient services. Combined with concerns about compliance and a desire to provide good benefits to their employees, the case for a PEO has made sense for medical providers.

The PEO provides a group of services and benefits, and bills the client for these, along with an administrative fee. In some cases PEOs offer additional optional HR services, such as recruiting and screening of job candidates, specialized training, and labor market assessments for business planning.

Access to Multiple Benefits and Online Information

Many PEOs provide access to a comprehensive employee benefits package. Many PEO benefit programs can include major and supplemental health care choices, including vision and dental care, and 401(k) programs, employee assistance programs (EAPs) and even adoption assistance.

PEOs find and negotiate benefit programs with carriers and can manage the burdensome and often complicated regulatory requirements, such as those of the complex Health Insurance Portability and Accountability Act (HIPAA) and the Consolidated Omnibus Budget Reconciliation Act (COBRA). They or their providers also handle the details of enrollment and administration.

Clients of seven out of 10 PEOs have access to health care benefits, and an estimated 94 percent of worksite employees in a PEO arrangement have access to a 401(k) plan, according to the most recent research of the National Association of Professional Employer Organizations (NAPEO).

Nearly all (98 percent) PEOs have established Section 125 cafeteria plans to offer client worksite employees the opportunity to pay for certain benefits with pre-tax dollars. Workers in many PEO relationships can use flexible spending accounts or health savings accounts to help them cover their out-of-pocket medical expenses.

Employment Responsibilities

When a business contracts with a PEO, the PEO assumes certain employment responsibilities, such as payroll, payroll taxes, securing workers’ compensation coverage and managing the claims process. The PEO also helps clients to comply with labor laws, including the Fair Labor Standards Act (FLSA) and the Family and Medical Leave Act (FMLA). For example, PEOs are keeping their clients abreast of the changes in the FMLA regulations proposed by the U.S. Department of Labor.

Medical practice leaders continue to be in charge of the day-to-day activities of the staff. PEOs do not interfere in the medical practice at all. Instead, they free up practitioners to focus on that practice. PEOs focus on employment issues, such as complaints of harassment, and can help to prevent compliance problems or to resolve actual incidents before any formal complaint is filed.

PEOs manage a wide range of administrative functions, such as maintaining employee files, processing unemployment claims, tracking workers’ compensation claims, and developing changes to workplace policies and procedures. They also manage much of the employer-related paperwork associated with benefits administration and government compliance, such as the IRS’s I-9 employment verification process.

Workers’ Comp Coverage

Many PEOs can assist clients in the process of securing workers’ comp coverage for the worksite employees in the medical practice, and they emphasize safety and compliance. PEOs will focus on risk management to create safer working environments. Clients should expect a worksite assessment when starting to work with a PEO. PEOs manage claims with a focus on controlling claims costs through prompt reporting, early treatment, and speedy resolution of each claim.

The PEO industry has a certification program based on best performance practices in workers’ comp risk management. Businesses that value risk management can look for a PEO with Workers’ Compensation Risk Management Certification from the Certification Institute (www.certificationinstitute.org).

Human Resource Management

Many PEOs help develop and document workplace policies and procedures in accordance with applicable state and federal employment laws. They assist in developing an employee handbook and provide related guidance and training.

The handbook explains how things work within the medical practice, and that consistency is an important way to provide a fair and attractive workplace.

As one physician recently told NAPEO, the PEO helped him ensure his practice complies with all regulations. The PEO staff advised him on the handbook so it would address the situations that are regulated. He also mentioned that the PEO developed training on blood-borne pathogens and OSHA compliance.

Too much costly turnover is another reason to seek outside assistance. Many PEOs can help with recruitment; more important, they can evaluate the reasons for turnover and suggest some solutions. They also can help with job descriptions, skill assessments and training.

Guidelines for Selecting a PEO

· Assess your workplace to determine your human resource and risk management needs.

· Make sure the PEO is capable of meeting your goals. Meet the people who will be serving you.

· Ask for client and professional references.

· Does the PEO have a demonstrated history of adherence to the PEO industry’s professional performance practices, including responsible financial management of its business? Check to determine if the PEO’s financial statements are independently audited by a CPA, whether their risk management practices have been independently certified by the Certification Institute, or if their operational, financial, and ethical practices have been independently accredited by ESAC. (On the NAPEO Web site, www.napeo.org, you can find PEOs that have audits.)

· Check to see if the company is a member of NAPEO, the national trade association of the PEO industry. Click on this link to visit NAPEO’s Directory of PEO Members:


· Investigate the company’s administrative and management expertise and competence. What experience and depth does their internal staff have? Does the PEO corporate staffing allocation follow the priorities of the PEO’s marketed services? Does their senior staff have professional training or designations?

· Understand how the employee benefits are funded. Is the PEO fully insured or partially self-funded? Who is the third-party administrator (TPA) or carrier? Is their TPA or carrier authorized to do business in your state?

· Understand how the employee benefits are tailored. Determine if they fit the needs of your employees.

· Review the service agreement carefully. Are the respective parties’ responsibilities and liabilities clearly laid out? What guarantees are provided? What provisions permit you or the PEO to cancel the terms of the contract?

· Make sure that the company you are considering meets all state requirements.

Milan P. Yager is Executive Vice President for the National Association of Professional Employer Organizations (NAPEO).

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